The British pound rebounded Tuesday after sinking to a record low against the dollar on concerns a UK government tax-cut plan could derail public finances.
Sterling jumped 1.34 percent to $1.0832.
On Monday, it struck an all-time low at $1.0350, perilously close to parity.
After the plunge, the Bank of England said it was playing close attention to financial markets, adding it would “not hesitate to change interest rates by as much as needed” to curb inflation.
The BoE, like central banks around the world, has hiked interest rates a number of times this year in a bid to cool decades-high inflation.
With the pound showing record weakness, analysts are forecasting a big rate increase when the BoE next meets for a regular policy meeting on November 3.
“A rate hike of over 150 basis points is currently priced in for the coming meeting,” Commerzbank analyst Esther Reichelt noted Tuesday, questioning if that would even be enough.
The Bank of England’s statement “is unlikely to calm all those who had already questioned the BoE’s determination to fight inflation even prior to these events”, she added.
Analysts added that the pound won back strength also as the dollar weakened slightly against other main rivals.